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2015 (8) TMI 653 - ITAT DELHI

2015 (8) TMI 653 - ITAT DELHI - TMI - Reassessment under section 148 - accommodation entry of share capital and making additions of amounts - Held that:- As the assessee has produced evidences in support of this claim and as the AO has not conducted any investigation nor collected any evidence to controvert the claim of the assessee in our view the additions are bad in law. See Ranbaxy Laboratories Ltd. v. Commissioner of Income-tax [2011 (6) TMI 4 - DELHI HIGH COURT], CIT v. Living Media India .....

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e Appellant : Shri R.S. Singhvi, CA For The Respondent : Shri Vikram Sahay, Sr. DR ORDER PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the assessee directed against the order of Ld. CIT(A) dated 14.2.2013 for the assessment year 2004-05. 2. Facts in brief : The assessee is a private Ltd. Company and it filed its return of income on 23.8.2004 declaring income of ₹ 11,000/-. The return of Income was processed u/s 143(1). Later notice u/s 148 of the Act dated 31.3.2011 wa .....

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ellate authority dismissed the appeal of the assessee. Aggrieved the assessee filed this appeal on the following grounds :- 1. (i)That CIT(A) was not justified in confirming reassessment under section 148 without appreciating facts of the case, provisions of law and submission of the appellant. (ii) That there is no factual or legal basis in assuming jurisdiction U/S 148 as there is no case of any income escaping assessment or any tangible material and recording of satisfaction in the context of .....

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r provided to the appellant in the context of alleged addition and as such there is no valid basis for any such addition in the impugned reassessment proceedings. (ii) That reference to statement of Sh. S. K. Gupta is without any factual or legal basis in the absence of any such allegation relating to the appellant company. (iii) That even otherwise no opportunity for clarification and cross examination was allowed and as such the said statement is not admissible or having any evidentiary value. .....

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erence, to the statement of the parties who are alleged entry provider or to the entries in the bank account d) In the reasons recorded, it is alleged that the assessee has received entries amounting to ₹ 20 lacs from Mrs. Anjali Gupta, Shri R.C. Goel and M/s. Mitsu Securities Management Ltd. but, however, these entries are not corroborated from the assessment order passed. This proves that the information received by the AO from the investigation wing was vague and incorrect. e) On the sa .....

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using Corporation (Delhi High Court) (dated 15/1/15) 3. CIT vs. Kelvinator India (2010) 320 ITR 561 (SC) 4. Mohan Gupta (HUF) vs. CIT (2014) 366 ITR 115 (Delhi High Court) 5. On merits he submitted that statement recorded during the course of survey u/s 133A, as no evidentiary value and hence no reliance can be placed on the alleged statement in the possession of the Revenue . 6. He argued that initiation of reassessment proceedings was in respect of an amount of ₹ 20 lacs but the AO consi .....

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td. vs. CIT (2011) 336 ITR 136 (Delhi) and other cases in support of this contentions. He submitted that the additions have to be deleted on this ground. 7. On merits he argued that the whole addition is based on the statement of Shri S.K. Gupta and in this statement Shri S.K. Gupta has made no references to the name of the assessee M/s. Raj Hans Towers Pvt. Ltd. He submitted that the share capital was received from directors. As regards other transactions i.e. loans he submitted that these were .....

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ustify the addition. He relied on the following case laws :- a) CIT vs. Metaphor Exports P. Ltd. (dated 13.1.2015) b) ITO vs. Rakam Money Matters P. Ltd. (Delhi ITAT) c) CIT vs. Rhombus International Pvt. Ltd. (Delhi High Court) (ITA No. 223/13) d) CIT vs. Kamdhenu Steel & Alloys Ltd. SLP (CC) no. 15640 of 2012, dated 17.9.2012 (Supreme Court) 8. He contended that the correctness and genuineness of this document is not in dispute, they could be no factual or legal basis for any addition, as .....

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ans are mainly received of Directors, family members and other associated concerns who are regular income tax assessee. He pointed out that the ITAT, in its order for the assessment year 2008-09 has accepted the genuineness of these loans and hence this issue is no more res integra. He relied on the following case laws :- 1. CIT vs. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220 2. CIT vs. Rhombus International Pvt. Ltd. (Delhi High Court) ITA No. 223/13 3. CIT vs. Metaphor Exports P. Ltd. .....

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he bank account maintained by him and his family members and this includes the account of Smt. Anjali Gupta. He referred to page 26 of the assessee s paper book which is a statement of account of Shri R.C. Goel with Oriental Bank of Commerce. He pointed out that, the income of Shri R.C. Goel is by way of salary of ₹ 72,000/- page 18 of the paper book and whereas the cumulative transaction in the bank was ₹ 3.41 crores which is abnormal. He submitted that in the case of Smt. Neelam Go .....

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year, no addition was made by the AO on the very same material, the Ld. DR submitted that this cannot a ground for deleting the additions and the order of the AO for that assessment year is not well founded. He pointed out during this year Shri S.K. Gupta did not appear and give his statement to the AO. He relied on the order of the Ld. CIT(A). He prayed that the order of the Ld. CIT(A) should be upheld. He relied on the order of the AO as well as the order of the first appellate authority. 11. .....

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f the authorities below, as well as case law cited, we hold as follows. 14. The first issue that has to be adjudicated is whether the reopening of assessment is valid in law. 15. The reasons for reopening as recorded by the AO are as follows. Reasons for the belief that income has escaped assessment: I Return declaring income of ₹ 11,000/- was filed on 23.08.2004 which was processed u/s 143(1) on 22.09.2004. Information has been received from the Investigation Wing of the Income Tax Depart .....

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n contained in the report and the evidences gathered. The report provides details of the modus operandi of the 'money laundering scam' and explain how the unaccounted money of the beneficiaries are ploughed back in its books of account in various forms including the form of bogus share capital/ capital gains etc after routing the same through the bank account (s) of the entry operators. Entry operators were identified after thorough investigation on the basis of definitive analysis of th .....

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ion:- Amount Instrument No. Date Name of entry provider Name of Bank 20,00,000 650618 24.12.2003 Anjali Gupta/R.C. Goel Mitsu HDFC The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned . As explained above, the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that the income chargeable to tax amo .....

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usal of these reasons demonstrates that a) It is based on a record from the investigation wing b) The AO claims to have perused the information contained in the report and the evidence gathered by the investigation wing. c) The report explains the modus operandi and identifies the entry operators and states that the entry operators are absconding leaving the money at the disposal of the beneficiaries d) The assessee is the beneficiary of the following accommodation entries Name of the entry prov .....

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into this position, based on which, he has come to the conclusion that income has escaped assessment. When the allegation of the investigation wing is that the assessee is itself an entry provider, to believe that the assesee has received accommodation entries from its directions is not a correct or cogent reason to believe that assessee s own money has been routed through an entry operator. The report of the investigation wing, has been accepted by the AO, without independent application of mi .....

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ived accommodation entries from its Director Smt. Anjali Gupta. When it is clear that Shri S.K. Gupta is an entry provider himself, the allegation that, the company controlled by himself and other family members has taken accommodation entries, in the absence of any admission by Shri S.K. Gupta or evidence brought on record is a vague and unsubstantiated reason. This is a case where Shri S.K. Gupta and his family members claimed to have invested money in the company and under such circumstances .....

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hat the petitioner had introduced money amounting to ₹ 5 lakhs during financial year 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie show .....

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be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed. 2. CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) held as follows :- The concept of "change of opinion" on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to .....

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formation of the belief. 3. Madhukar Khosla vs. ACIT (2014) 367 ITR 165 (Del) held as follows :- S. 147: If "reasons to believe" art not based on new, "tangible materials", the reopening amounts to an impermissible review. In AY 2006-07 the AO passed an assessment order u/s 143(3). Thereafter, after the expiry of four years from the end of the AY, he issued a notice u/s 148 reopening the assessment on the ground that the records showed that an amount of ₹ 25L had to be .....

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contribution, it could not be said that there was a "change of opinion". HELD by the High Court allowing the Petition: (i) In the recorded reasons. no details are provided as to what such information is which excited the AO's notice and attention. The reasons must indicate specifically what such objective and new material facts are, on the basis of which a reopening is initiated u/s 148. This reassessment is clearly not on the basis of new (or "tangible") information or .....

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ver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective "trigger", the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question. whether the re- opening of assessment amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an .....

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eassessment for the assessment years 2002-03 and 2003-04 showed that they were based on the information received by the Assessing Officer from the Director of Income-tax (Investigation) that the assessee was involved in giving and taking bogus entries/transactions during the relevant year which actually represented unexplained income of the assessee. The Tribunal had found that the Assessing Officer did not mention the details of the transactions that represented unexplained income of the assess .....

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hat the reasons disclosed that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. The reasons recorded by the Assessing Officer did confirm the apprehension about the harm that a less strict interpretation of th .....

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mation of belief was a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer was required to form an opinion before he proceeded to issue a notice. The validity of reasons, which were supposed to sustain the formation of an opinion, was challengeable. The reasons to believe were required to be recorded by the Assessing Officer. Once the ingredients of section 147 were fulfilled, the Assessing Officer was compete .....

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. Though conclusive proof was not germane at this stage the formation of belief must be on the base or foundation or platform of prudence which a reasonable person was required to apply. From the perusal of the reasons recorded and the order of rejection of objections, the names of the companies were available with the authority and their existence was not disputed. The assessee in its objections had stated that the companies had bank accounts and payments were made to the assessee through banki .....

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heque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer had not even recorded his satisfaction about the correctness or otherwise of the info .....

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the facts of this case, we uphold the contentions of the Ld. Counsel for the assessee that the reopening is bad in law for the reason that , a) There is no tangible material, which come to the possession of the AO to lead to the conclusion that there was an escapement of income from assessment. There is no reference to any statement or bank account or any other material other than a main report of the investigation wing. b) The reasons recorded are not after independent verification and applica .....

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money was routed through the director of the assessee company, based on the report of the investigation wing is unsubstantiated and not corroborated by any material. 20. We now consider the contentions on merits. The argument of the assessee is that the reopening is bad in law for the reason that approval was not obtained from the Joint Commissioner has to be dismissed as devoid of merit, as the Ld. DR has produced the approval by the Additional Commissioner of Income Tax dated 29.3.2011 and thi .....

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ioner of Income-tax [2011] 336 ITR 136 . (Del) held as follows :- Section 148 was supplementary and complementary to section 147. Subsection (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (I) mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax had escaped a .....

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ore the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. b. CIT v. Living Media India Ltd. [2013] 359 ITR 106 (Delhi) held as follows :- Reassessment - Notice - Validity - To be judged on basis of Reasons recorded prior to issue of notice - additions based on reasons recorded prior to notice deleted and that order becoming final - reassessm .....

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ceeding u/s 147 is a special proceeding and can be confined to only to the issue on the basis of reassessment proceeding has been initiated and no general questionnaire can be issued for the same. It is not permissible for the AO to make fishing and Roving enquiries for finalizing the reassessment of the assessee. e. Travancore Cements Ltd vs ACIT; (2008) 219 CTR 359 (Ker) Assessing officer gets jurisdiction under Section 148 to assess or reassess the income which has escaped assessment only aft .....

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s which are totally unconnected with the proceedings already initiated. 22. Applying the proposition laid down in these case laws to the facts of this case, we uphold the contentions of the assessee that the AO cannot consider additions other than those material in the reasons for reopening in the absence of fresh tangible material. In case fresh tangible material comes to the possession of the AO on any other issue, then the proper course of action would be, to record fresh reasons and issue a .....

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nothing adverse was found and hence no adverse inference is drawn. In our view this order of the AO for the assessment year 2005-06, cannot in any way influence the proceedings for this assessment year. Each assessment year is an independent proceedings and the additions during the impugned assessment year has to be decided based on the merits and evidence of the current assessment year. Thus this contention of the assessee is rejected. 24. On merits, we find that the assessee has received share .....

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s furnished evidences in support of the transactions. There is no investigation whatsoever by the AO. No specific reasons are recorded by the AO or by the Ld. CIT(A), as to why the evidence filed by the assessee, casewise, cannot be accepted. No attempt has been made to discredit the evidences filed by the AO. Ld. DR had tried to fill in this gap by analysing the evidences filed by the assessee and bringing to the notice of the bench the issue of creditworthiness of some of the share applicants. .....

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holders, as no investigation is carried out by the AO in these cases also. 26. A perusal of the above demonstrates that the assessee has furnished before the AO evidences to establish the identity of the persons who either invested in share capital or granted a loan. On the other hand the AO has not conducted any investigation nor did he have any of the material gathered by the Investigation Wing based on which the addition can be made. He merely relied on a report of the Investigation Wing. 27. .....

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Officer carries out the exercise which is required in law and the other in which the Assessing Officer (sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order t .....

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that the actual amount received was ₹ 55, 50, 000/- and not Rs.l,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at ₹ 55,50,000/-. The assessee has further tries to explain the source of this amount of ₹ 55,50,000/- by furnishing copies of share application money, balance4 sheet, etc. of the parties mentioned abo .....

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e has furnished inaccurate particulars of its income, penalty proceedings under Section 271(1)(c ) are being initiated separately. " The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry o .....

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ease Pvt.Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8, it is held as follows. 6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application, affidavits for the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company&# .....

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ssary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of S. 68 of the Income Tax Act, 1961. 7. Having regard to the entirety .....

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